Comparing Coca-Cola Enterprise and Pepsi Co. Financial Management Research Paper

Comparing Coca-Cola Enterprise and Pepsi Co. Financial Management - Research Paper Example They are equally important for all, Management, Owners and prospective Investors. The first thing that attracts investors to a Company is its profitability and what the investors will get in return of their investment, as profit whether distributed or not is Profitability measures are important to company managers and owners alike. If an entity has to attract investors , the owners have to show some attractive profits to lure them into investing and for that the profitability ratios are the key. Company’s overall efficiency and performance is shown by the profitability ratios and one can easily compare financial information available for two or three companies to ensure the worth of each after making and investment. Financial Ratios used to determine the satisfaction of a Company’s Stockholders: The Return on Equity is an important ratio as it calculates the company’s earnings performance and tells the shareholders how much are they getting on every $1 of their investment (as capital) made in the company. This ratio explains the shareholders how effectively their money is being employed and getting the profits for the company each period. Shareholders, on comparing the ratios with similar companies or industry as a whole, can get the satisfaction or dissatisfaction that their monies are utilized properly and getting the desired results or not. However, it should be kept in mind while making the comparisons that there are variations in this ratio among some types of businesses. The Dividend Payout Ratio, as the shareholders are always looking for the return, not in form of figures in the financial statements but also in their hands as ready cash. This ratio indicates the dividend a company pays to its common shareholders on every $1 net profit it earns. That is how muc h of the profit is distributed by the company to its shareholders as return and how much is retained. And no matter how forward looking the shareholders are they are always looking for some materialistic return and dividend is one of those things that satisfy the shareholders the most. Guidelines to invest in one of those companies: The debt ratio gives an idea how much the Company is indebted as compared to the assets it held. That is the amount of total liability per $1 of its total assets. The more the debts are the more riskier is the company and its operations to invest in as its shows that the company is not able to pay its debts from the assets it holds if all the amount is called currently. Further it also indicates that in case of liquidation the shareholders equity would be utilized and the owners share in the assets will be reduced or nullified. Comparing Coca-Cola Enterprise and Pepsi Co, in this regard Coca-Cola Enterprise is less risky because of its 0.946 debt ratio a s compared to Pepsi Co’s 0.562. The Current Ratio highlights the liquidity of the company, higher the current ratio means more liquid the company is and that the company’